"I am considering doing..." threads would be much more entertaining if the OPs actually <i>did it</i> whatever it is they propose, for a year or two, then reported back what they'd learned after absorbing some losses.
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Gamma Scalping and Reverse Gamma Scalping
- Thread starter jwcapital
- Start date
Selection bias, though.... anyone reporting back on ET is likely to have only suffered small losses.Quote from Rodney King:
"I am considering doing..." threads would be much more entertaining if the OPs actually <i>did it</i> whatever it is they propose, for a year or two, then reported back what they'd learned after absorbing some losses.
- Big losses, and they won't mention it.
- Big wins, and they'd be too busy raising money to clue in potential competitors.
Hey Jw...
I've followed your thread on short straddles. It's interesting that you'd consider an Iron Butterfly, since the cost of insurance (i.e. long wings) is sooo high...
I think TivTheTrader has it right, short straddles (or even short strangles) seems to be the best route if one is able to avoid the dreaded "black swan" events. I think the key is playing the probabilities and managing risk. A major point... don't over leverage!
I like your notion of playing the probability of a direction when trading a short straddle; however, instead of a ratio of 3:2 or even 3:1 with the puts vs. calls, I would enter into a strangle with the side that I think is most likely to go down to be deeper ITM.
Needless to say, a major "achillies heel" of this strategy is rising IV!!!! Since volatility typically rises when the market is dropping, perhaps the only insurance is otm puts during times of high uncertainty (i.e. macro news events)...
Any further thoughts...
thanks,
Walt
I've followed your thread on short straddles. It's interesting that you'd consider an Iron Butterfly, since the cost of insurance (i.e. long wings) is sooo high...
I think TivTheTrader has it right, short straddles (or even short strangles) seems to be the best route if one is able to avoid the dreaded "black swan" events. I think the key is playing the probabilities and managing risk. A major point... don't over leverage!
I like your notion of playing the probability of a direction when trading a short straddle; however, instead of a ratio of 3:2 or even 3:1 with the puts vs. calls, I would enter into a strangle with the side that I think is most likely to go down to be deeper ITM.
Needless to say, a major "achillies heel" of this strategy is rising IV!!!! Since volatility typically rises when the market is dropping, perhaps the only insurance is otm puts during times of high uncertainty (i.e. macro news events)...
Any further thoughts...
thanks,
Walt
Quote from jwcapital:
Appreciate the comments. I like the suggestion of using an iron butterfly in place of the short straddle. I checked, and the margin requirements really drop for the IB. I also looked at adjustments at the absolute value of delta at 25 vs 50. I prefer to use the underlying ES futures (delta of 50) to adjust rather than using an ATM option (delta of 25). Using the ES futures has no effect on the gamma, vega, and theta of the IB--which is ideal. So, I like adjusting when the absolute value of delta is 50. I worked through some scenarios using an IB and reverse gamma scalping. Obviously, the fewer adjustments needed, the higher the profit (the theory of mean reversion lives). I have even noted that a profit can be had even if the underlying surpasses the wings. The market does trade in a range often, albeit a wide range these days. By RGS (reverse gamma scalping), the loss as the underlying approaches the wings, is very much smaller than the short straddle. Obviously, as volatility decreases--that's plus for the IB. The bottom line, it always seems , is that gamma, theta and vega affect delta.